This clause requires one or both parties to maintain insurance coverage specifically for force majeure events—situations beyond parties' control such as natural disasters, pandemics, wars, or other catastrophic occurrences. The clause essentially mandates that a party cannot claim force majeure as an excuse for non-performance unless they have obtained and maintained appropriate insurance to mitigate the impact of such events. This creates a financial safeguard ensuring that even when unforeseeable circumstances occur, the insured party has resources to continue performance or compensate the other party for losses. The clause matters because it shifts risk management responsibility onto the party better positioned to obtain insurance, preventing one party from using "acts of God" as a complete escape hatch while leaving the other party without recourse.
However, this clause can be problematic because force majeure events are often uninsurable or prohibitively expensive to insure against. It may also create a false sense of security—insurance may not cover all losses or may have significant exclusions. The requirement could make contract performance economically unfeasible if insurance premiums become excessive, and it may conflict with the fundamental purpose of force majeure clauses, which traditionally excuse performance when events are truly beyond a party's control and mitigation capacity.
Before agreeing to this clause, obtain quotes from insurance brokers to determine whether adequate force majeure coverage is actually available and affordable for your industry and risk profile. Negotiate specific carve-outs for uninsurable events and establish a reasonable insurance threshold (e.g., "commercially available insurance" rather than unlimited coverage). Consider adding language that force majeure relief is available if insurance is unavailable despite good-faith efforts to obtain it, and clarify whether the insurance requirement applies only to certain types of events or all force majeure scenarios. Document your insurance procurement efforts to protect yourself if coverage becomes unavailable.
Frequently Asked Questions
What does this clause mean in simple terms?
This clause requires one or both parties to maintain insurance coverage specifically for force majeure events—situations beyond parties' control such as natural disasters, pandemics, wars, or other catastrophic occurrences.
Why should I care about this clause?
The clause essentially mandates that a party cannot claim force majeure as an excuse for non-performance unless they have obtained and maintained appropriate insurance to mitigate the impact of such events.
What are my options?
This creates a financial safeguard ensuring that even when unforeseeable circumstances occur, the insured party has resources to continue performance or compensate the other party for losses.
How does this affect small businesses?
The clause matters because it shifts risk management responsibility onto the party better positioned to obtain insurance, preventing one party from using "acts of God" as a complete escape hatch while leaving the other party without recourse.